Start-up food companies bypassing brick and mortar

E-commerce is changing how food and beverage start-ups are going to market.

ANAHEIM, CALIF. – E-commerce is changing how food and beverage start-ups are going to market. While the days of introducing products at farmer’s markets, expanding to regional retailers, and then scaling up to national distribution have yet to fade, the traditional business model is being upended. Today, start-up brands are adopting direct-to-consumer and third-party e-commerce initiatives to gain customers and sales velocity and eventually fund distribution into brick and mortar.

“Major changes are happening in the retail landscape,” said Bob Burke, a principal in Natural Product Consulting, Andover, Mass., March 8 during an education session at the Natural Products Expo West tradeshow.

He added that Amazon is making changes in some of Whole Foods Market’s business practices and it is no longer clear how emerging brands may engage with the retailer to gain shelf space and exposure.

Referencing a recent Food Marketing Institute/Nielsen report, Mr. Burke said online grocery sales are expected to reach $100 billion by 2022. He added that, as such technologies as smartphones and connectivity have become ubiquitous, how consumers shop is changing. Rather than a focused, planned effort, shopping is ongoing with the consumer using all of the tools at his or her disposal to research and acquire products.

Two examples of small brands leveraging the power of e-commerce cited by Mr. Burke are Cauli’Flour Foods and Nutpods. Cauli’Flour, Chico, Calif., is a manufacturer of plant-based pizza crusts and pizzas.

“They are just two years old, and almost all of their business is direct-to-consumer, “Mr. Burke said. “To reach consumers they do a lot of e-mail marketing, Google Adwords, social media and customer reviews.”

Using direct-to-consumer allows the company to build a stronger connection with consumers and have total control over its message.

“They can see the immediate effects and R.O.I. on their marketing initiatives,” Mr. Burke said. “They can quickly zone in on what is working and what is not working.”

He said the company is facing challenges. For example, fulfillment can be a complex and costly process. It is also facing the challenges all companies face when adding scale.

“But they are using direct-to-consumer to help fund their brick-and-mortar expansion,” Mr. Burke said. “Last year they did over $5 million in direct-to-consumer. This year they are expecting $15 million to $16 million.”

Another business Mr. Burke discussed was Nutpods, Bellevue, Wash., a manufacturer of plant-based creamers.

“This is a business that is less than three years old, but they are the best-selling creamer online,” Mr. Burke said.

The Nutpods business started with a successful Kickstarter campaign, said Mr. Burke, and then it put its products on Amazon where it worked as an Amazon Seller rather than a Vendor in order to control product price point and inventory levels.

In the case of Nutpods, Mr. Burke said the company benefited from positive reviews.

“Reviews are king as today’s consumers want the social proof of peer reviews,” he said. “It created a flywheel effect for the brand.”

Similar to Cauli’Flour, Nutpods has been able to generate enough cash flow from its online business to fund its expansion into the brick-and-mortar market.

Pointing to efforts like Amazon Go, Walmart’s testing of automatic pickup, retailer click-and-collect initiatives, and two-hour delivery in some regions, Mr. Burke said there are many “cool new concepts” emerging.

“E-commerce is exploding, and direct-to-consumer is prevalent, and a lot of people are exploring it,” he said.